## Facts

- Contel Credit Corporation financed Hallman Chevrolet’s lease of a telephone system.
- Central Chevrolet allegedly guaranteed Hallman’s lease-payment obligations.
- The corporate guaranty was signed by Joseph Pugia, who claimed to be Central’s vice president and chief operations officer.
- The guaranty was accompanied by a certificate signed by Central’s corporate secretary stating that Central’s board authorized Pugia to execute and deliver the guaranty.
- Hallman later entered bankruptcy and left unpaid lease obligations.
- Contel sued Central to enforce the guaranty.
- The trial judge found Pugia was not an officer or director of Central or Hallman and had fraudulently procured the secretary’s certificate, then dismissed Contel’s complaint on the view that Contel should have verified Pugia’s representations.
- Central presented no evidence that Contel knew or should have known of Pugia’s fraud; the evidence showed Contel relied on the secretary’s certificate.

## Issues

1. Whether a third party receiving a corporate guaranty may rely on a corporate secretary’s certificate of board authorization when the certificate was fraudulently procured by the signatory, absent evidence the third party knew or should have known of the fraud.

## Decision

- The Appeals Court reversed the dismissal and held Contel was entitled to rely on the secretary’s certificate on the facts found.
- The court rejected the trial court’s requirement that Contel independently verify Pugia’s authority beyond the facially regular secretary’s certificate.
- The case was remanded for entry of judgment for Contel.

## Legal Principles

- A recipient of a corporate guaranty may rely on a corporate secretary’s certificate stating that the board authorized execution and delivery of the guaranty, unless there is evidence the recipient knew or should have known the certificate was fraudulently procured.
- When formal corporate documentation creates an appearance of authority and an innocent counterparty reasonably relies on it, the corporation bears the loss from internal fraud rather than the counterparty.
- Absent suspicious circumstances or notice, commercial parties are not required to investigate internal corporate authority beyond regular corporate certificates.

## Conclusion

The court held that an innocent finance company could enforce a corporate guaranty supported by a secretary’s certificate of board authorization, despite the signatory’s internal fraud, because there was no evidence the finance company knew or had reason to know the certificate was improperly obtained.


Contel Credit Corp. v. Cent. Chevrolet, Inc., 29 Mass. App. Ct. 83, 557 N.E.2d 77 (1990)